Rental business mortgage relief

Since April 2020, landlords can no longer deduct mortgage interest as an expense. Instead, tax relief is capped at 20%. This change affects UK and non-UK resident landlords, trustees, and partnerships but excludes companies. Learn how this impacts your tax bill.

In April 2017, new rules were introduced that limited the tax relief on mortgage costs for residential landlords to the basic rate of tax. This restriction on finance costs was phased in over several years and was fully implemented by 6 April 2020. As a result, all finance costs, including mortgage interest on rented properties, are no longer allowed as expenses. Any available tax relief is now capped at the basic tax rate of 20%.

Finance costs includes interest on mortgages, loans (including those for furnishings), overdrafts, alternative finance returns, mortgage fees, and other related costs, such as discounts, premiums, and disguised interest. However, no relief is granted for capital repayments of a mortgage or loan.

You will be affected by this restriction if you are:

• A UK resident individual letting residential properties in the UK or abroad.
• A non-UK resident individual letting residential properties in the UK.
• An individual letting residential properties in a partnership.
• A trustee or beneficiary of trusts liable for Income Tax on residential property profits.

The finance cost restriction does not apply if you are a:

• UK resident company
• Non-UK resident company

These entities will continue to receive relief for interest and other finance costs in the usual manner.